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PUERTOLLANO
HYDROGEN IS THE most abundant element in the universe and a vast source of clean fuel. For investors, it is an equally rich source of hype. As parts of the world get a bit more serious about tackling climate change, hydrogen has emerged as an important part of global decarbonisation efforts. Over 1,000 hydrogen projects are under way worldwide, more than 350 of which have been announced in the past year. They are expected to result in some $320bn-worth of investments by 2030. Venture capitalists and buy-out barons poured $8bn into hydrogen ventures last year, up from just over $2bn in 2020 (see chart 1). On July 7th Thyssenkrupp Nucera, a pioneering manufacturer of electrolysers, giant machines used to make hydrogen by stripping it from oxygen in water, is expected to list in an initial public offering that could value the firm at nearly $3bn. The IPO is backed by a Saudi sovereign-wealth fund and BNP Paribas, a French bank.
All this frenetic activity is prompting worries of an H2 bubble akin to an earlier one in the 2000s, which ended in tears for the investors who had ploughed money into such projects. Signs of excess are certainly there. An index of listed hydrogen firms has underperformed America’s S&P 500 blue-chip benchmark over the past year, while displaying a volatility worthy of the gas (see chart 2). ITM Power, a long-standing British electrolyser-maker, ousted its boss last September after repeatedly failing to meet promises for expansion. In October the founder of Nikola, an American startup developing hydrogen-powered lorries, was convicted for misleading investors. Even prominent hydrogen boosters acknowledge that things have become frothy. Olivier Mussat, boss of Atome, a British firm planning to make fertiliser from hydrogen produced using excess hydroelectric power in Paraguay, worries that “a lot of people have been selling ‘hopium’.”
In fact, the problem with today’s boom may be not that there is too much money chasing hydrogen but too little. Deep decarbonisation requires much bigger investments. The International Energy Agency, an official forecaster, reckons that clean hydrogen should comprise roughly a tenth of final energy use by 2050, up from a thimbleful today. To achieve net zero carbon emissions by 2050, another $380bn will need to be invested in hydrogen by the end of this decade, on top of the $320bn announced so far.
Happily for the planet, there are reasons to think that the latest investment cycle may be different, even if some investors get their fingers burned. Unlike 20 years ago, when the hype was whipped up by enthusiasm for cars fuelled by hydrogen, this time the focus is on emissions-intensive industries such as steelmaking, cement and long-haul transport, which cannot be decarbonised by electrification alone. Governments, especially those elected by increasingly climate-conscious Western societies, are trying to help bootstrap the industry into existence with generous subsidies. And market forces are blowing away some of the hydrogen froth without snuffing out the business as a whole. David Giordano of BlackRock, a giant asset manager with big hydrogen bets, says that the hydrogen business is ripe for “a useful correction”.
The reason a clean-hydrogen industry is taking so long to get off the ground has to do with another aspect of the element’s chemistry. Because it is highly reactive, it scarcely exists on Earth in its free state and is instead bound up in molecules with other elements, chiefly carbon (in natural gas and other hydrocarbons)
